Store Traffic Helps Off-Pricers Grab Retail Spotlight

The off-price sector is the brightest spot in retail.

Ross Stores Inc. and TJX Cos. Inc. both reported second-quarter gains in net sales and comparable-store sales this week boosted by increased store traffic.

On Thursday, Ross Stores said after the equity markets closed that net income for the three months ended July 29 rose 12.3 percent to $316.5 million, or 82 cents a diluted share, from $281.9 million, or 71 cents, a year ago. Net sales rose 7.9 percent to $3.43 billion from $3.18 billion, while comps gained 4 percent on top of the 4 percent growth a year ago.

Wall Street was expecting diluted earnings per share of 77 cents on sales of $3.37 billion.

Barbara Rentler, chief executive officer, said, “We are pleased with the better-than-expected growth we delivered in both sales and earnings in the second quarter, especially given our strong multiyear comparisons and today’s volatile retail climate.” The ceo noted that the operating margin was 14.9 percent, which was better than company projections, and added it was due to a combination of “higher merchandise margin and leverage on our above-plan sales gains.”

According to Rentler, the company is expecting third-quarter comps to be up 1 to 2 percent, on top of the 7 percent comps gain a year ago. The forecast for EPS is between 64 cents and 67 cents, which would be up from 62 cents a year ago. The third quarter ends on Oct. 28. For the fourth quarter ending Feb. 3, comps was guided to growth of 1 to 2 percent, on top of a 4 percent increase last year, while EPS was forecasted at 88 cents to 92 cents, up from 77 cents a year ago.

During the conference call to Wall Street analysts, company executives said the plan is to add 30 Ross stores during the third and fourth quarters. The company also operates DD’s Discounts, and plans to open 10 new locations over the same period. Rentler added that the “results were driven by our ongoing ability to offer compelling bargains in today’s value-oriented consumer.”

During the call, company executives also noted that the promotional environment from some competitors continues to be ”very aggressive,” and that the promotions “are going to continue as we go forward through back-to-school and enter holiday.”

The executives also noted that the 4 percent comp gain in the quarter was driven by both higher traffic and an increase in the size of the average basket, although proportionately, “traffic contributed more than the basket.”

Ernie Herrman, ceo and president of TJX Cos., in a conference call to analysts on Tuesday after his firm posted results, also said, “Customer traffic was the primary driver of our consolidated comp increase.…We remain convinced that we have been growing our customer base and gaining market share at each of our four major divisions.” Those divisions include T.J. Maxx and Marshalls, HomeGoods, TJXCanada and TJX International. Herrman also said there are plenty of opportunities to buy goods in the market, helped by continuing weakness at full-price retailers and mass store closures.

On Tuesday TJX said net earnings slipped 1.6 percent to $553 million, but saw sales rise 6 percent to $8.36 billion and a 3 percent comps gain in the quarter.

Following TJX’s report of earnings on Tuesday, analyst Paul Lejuez of CitiGroup Global Markets said, “Traffic continues to drive comps and younger customers are gravitating to the off-price experience.” The analyst also said the off-price model “remains fairly well insulated from the online threat.”